Delivering income transfers through Basic Income May 2016 Kevin - - PowerPoint PPT Presentation

Milligan: Basic Income 1

Delivering income transfers through “Basic Income”

May 2016 Kevin Milligan Vancouver School of Economics University of British Columbia

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Question: Should we use “Basic Income” for income support?

• 1. Why do we get cheques from government?
• 2. What is “Basic Income”
• 3. What problem is this supposed to solve?
• 4. Costing of Basic Income Schemes
• 5. What ‘welfare’ really looks like
• 6. The Basic Income Impossible Trinity
• 7. Questions to ask about Basic Income proposals

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Why do we get cheques from government?

• 1. Pure redistribution

Some care about shape of whole income distribution. Some care about poverty alleviation: efficiency and equity

• 2. Insurance

Because of adverse selection, insurance markets sometimes fail.  E.g. employment insurance. Public mandated participation can overcome the problem.

• 3. Behavioural realities

Saving is hard. We might prefer to use government as ‘commitment device’

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The ‘Single Tax’ of Henry George (American, 1839-1897)

What Georgist ‘single taxers’ advocated:  Fixed supply of land belongs to ‘the people’.  Land value should be taxed; some advocate handing it out to all citizens as ‘basic income.  This single tax is preferable to taxes on productive activity.  Opposed tariffs; all that is needed is land value taxation!  Georgism mostly of died out in 20th century, but seems popular on the internet. They have conventions, factions, and like handing out pamphlets on street corners.

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What is “Basic Income”?

People seem to have many different ideas in mind, but three key questions for any design:

• 1. Basic transfer: how much?
• 2. Phase-out rate: payment decreases with income or not?
• 3. Does this new program replace all existing government spending? Just the

income supports? Some income supports?

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Universal vs Income Guarantee

Characterize the different models by degree of income phase-out. Phase-out rate Model 0% Universal Basic Income 25% 50% 100% Minimum Income Guarantee / Income top up

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What problem is this supposed to solve?

There are many claims:  Relieve poverty  can deliver improved outcomes.  Improve work incentives  Remove ‘welfare wall’ of current system.  Decrease bureaucracy  indignity and waste But…  Not a great replacement for social insurance like EI or CPP.

• Doesn’t provide much insurance for middle earners.
• Unless transfer was huge, would make many worse off.

 Can we realize all these goals at once?

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How much would a universal basic income cost?

 Say, $15,000 per person for basic transfer. (Makes some worse off!)  We are 36 million people.  Cost of $540 billion, or 27% of GDP.  Total federal government revenue in 2016-17: $288B.

• Total government revenue (Fed/Prov/Muni) in 2014-15: $745B

Does anyone really advocate this universal model?  Yes. It’s all over the internet and in op-eds, often without any basic math.  Or, see a paper by Periera (2015) arguing how to pay for a $392B Basic Income by raising taxes and cutting spending.  Or, see Abdelkrim, Duclos, and Blais (2005 L’Actualité économique)  Or, see CCPA 2009 study which costs universal model.

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How much would a minimum income guarantee cost?

Using 2010 Survey of Labour and Income Dynamics: Topping up all families to the low-income cutoff.  About $32B in 2010 $. Giving $15K per adult as minimum income guarantee  About $63B in 2010 $. Questions:  Of course, this model has 100% tax on labour market earnings, so there are efficiency questions….  How is this different from bigger social assistance cheques? Is this really what people mean when they say “basic income”?  Of course, could have different amount for kids, or different basic transfer.

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Funding Basic Income

What if we cancel some existing income transfers? Social assistance $10-$15B Child Benefits $25B Employment Insurance $21B OAS/GIS $48B CPP/QPP $42B / $14B If you totaled all this, you’d get something like $165B. What if we raise taxes? GST per point ~$6B Corporate income taxes ~$2B per point, assuming static profits. Total untaxed income over $250K $96B (2013)

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Can we save on ‘bureaucracy’?

What does ‘welfare’ actually look like? Ontario Public Accounts…

Administration: $284 Million This is $20/Ontarian. Benefits: $8.03 Billion This is $575/Ontarian.

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The Basic Income Impossible Trinity

You can choose only TWO of these three features: Large basic transfer Same cost as existing system PICK TWO Low phaseout rate

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Policy example that respects the trinity

Wayne Simpson and Harvey Stevens University of Calgary School of Public Policy Research Paper Proposal: Make non-refundable tax credits refundable. Some details:  Transfer size: Averages $1,436 per low-income taxfiler  Phase-out rate: 20% above ¼ of LICO  Additional cost: $7.23B Should we do this? It is worthy of debate because they have a realistically- costed plan. Basic Income advocates need to show us their math…

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Watch for these dubious claims…

“Both left and right agree…”  ‘right’ likes low phaseout rates; ‘left’ high transfers.  Can’t do both at once---beware the impossible trinity! “Increasing transfers to low incomes boosts health etc.”  Does the proposed transfer actually boost low incomes? Or is most of the money going to middle and high earners? “Can pay for it with some simple changes...”  How ‘simple’ are those changes to enact? E.g. CPP/OAS. E.g. disability. E.g. fed-prov issues.  Even if we could raise the money, would Basic Income be the best way to spend it?

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Questions to ask about any Basic Income model

• 1. The basics: transfer and phase-out rate.
• 2. Are you canceling existing transfers? Which ones?
• 3. Will anyone be made worse off?
• 4. Have you costed the model?
• 5. How will you raise $X Billion in new tax revenue?
• 6. What is the gain of raising $XB in new taxes to hand out cheques to middle

and high earners?